Focus bid for Crescent hits a Stone

Hong Kong company Stone Mining has built a blocking stake in
Crescent Gold
, the $68 million takeover target of fellow West Australian gold junior
Focus Minerals
, with a market capitalisation of $227 million.

But Stone Mining, a subsidiary of diversified investment group Stone Group Holdings, remains a bit of an enigma to Crescent, partly because an exclusivity deal that Focus struck with Crescent contains standard no shop, no talk clauses.

Stone has amassed a 10.85 per cent interest in Crescent according to its last shareholder notice. It has been paying as much as 6.6¢ a share.

Stone has been adding to its Crescent stake since July when the target company’s directors accepted the friendly scrip-based takeover bid from Focus of one Focus share for every 1.18 Crescent shares.

The takeover bid came in late June. About three months earlier Crescent shares took a dive in the market from about 10¢ to as low as 2.8¢.

On Friday, Focus and Crescent shares closed at 6.7¢ and 5.8¢, respectively. Under the offer, Crescent shares are worth 5.68¢.

If the Focus bid succeeds, it would make the acquirer one of the largest goldminers listed on the ASX, with four mines, a target output of 230,000 ounces of gold a year, and resources of 4.3 million ounces.

There’s a catch. The Focus bid has a 90 per cent minimum acceptance condition. Stone’s stake of more than 10 per cent of the target may put it in a position to spoil the deal.

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Focus has quickly acquired 62.12 per cent of the target, according to its last notice. Focus chief executive
Campbell Baird
is now calling the shots for Crescent, which has
Mark Tory
as its managing director.

Focus obtained effective control of Crescent earlier this month when substantial shareholder Deutsche Bank accepted the bid subject to no superior bid emerging.

This week Focus extended the offer by two weeks to August 31. The offer was meant to close on August 1.

Under the Focus offer, Crescent shareholders that accepted will be able to withdraw their acceptance if Focus extends the offer by more than a month while still conditional.

It appears that Focus wants to own Crescent outright. If Focus waived its 90 per cent condition it would need to be willing to live with Stone being a minority shareholder.

The question becomes whether Stone will make a counter proposal. Stone’s holding is unlikely to be a passive portfolio holding. There would be some strategic angle.

If a cash bid from Stone emerges, under the four-month look-back rule, they would have to bid at least 6.6¢. Otherwise, Stone may be seeking leverage to obtain assets.

Further complicating matters are convertible notes issued by Crescent to Focus. Crescent shareholders will vote on August 18 on the approval of loans from Focus worth $13 million being converted into shares and share options in Crescent Gold.

The issue would result in non-Focus shareholders being diluted. It does not appear that this will take Stone’s stake below 10 per cent.

Focus itself will be excluded from voting but it remains to be seen whether shareholders that have accepted the bid are eligible to vote. This association question may be tested by the Takeovers Panel if a party makes such an application.

Stone’s vote may carry considerable weight if only those shareholders that haven’t accepted the offer can vote. But Stone’s voting intentions are not at all clear.

The key disadvantage of Crescent shareholders not giving approval is that Focus may demand prompt repayment of the bridging finance.

Independent expert Stantons International Securities labelled the proposals “fair but not reasonable" to the non-associated shareholders of Crescent.

Hartleys’ Grey Egerton-Warburton and Steve Kite are tending to Focus, along with Mallesons Stephen Jaques partner David Perks. Crescent has Greg Martyr of Gryphon Partners and law firm Gilbert+Tobin. Stone is using law firm Steinpreis Paganin.